I am Director of Entitlement and Budget Policy for the Heartland Institute, Senior Advisor for Entitlement Reform and Budget Policy at the National Tax Limitation Foundation, General Counsel for the American Civil Rights Union, and Senior Fellow at the National Center for Policy Analysis. I served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush. I am a graduate of Harvard College and Harvard Law School, and the author most recently of America's Ticking Bankruptcy Bomb (New York: Harper Collins, 2011).
I write about new, cutting edge ideas regarding public policy, particularly concerning economics.

Reaganomics Vs. Obamanomics: Facts And Figures

In February 2009 I wrote an article for The Wall Street Journal entitled “Reaganomics v Obamanomics,” which argued that the emerging outlines of President Obama’s economic policies were following in close detail exactly the opposite of President Reagan’s economic policies. As a result, I predicted that Obamanomics would have the opposite results of Reaganomics. That prediction seems to be on track.

When President Reagan entered office in 1981, he faced actually much worse economic problems than President Obama faced in 2009. Three worsening recessions starting in 1969 were about to culminate in the worst of all in 1981-1982, with unemployment soaring into double digits at a peak of 10.8%. At the same time America suffered roaring double-digit inflation, with the CPI registering at 11.3% in 1979 and 13.5% in 1980 (25% in two years). The Washington establishment at the time argued that this inflation was now endemic to the American economy, and could not be stopped, at least not without a calamitous economic collapse.

All of the above was accompanied by double -igit interest rates, with the prime rate peaking at 21.5% in 1980. The poverty rate started increasing in 1978, eventually climbing by an astounding 33%, from 11.4% to 15.2%. A fall in real median family income that began in 1978 snowballed to a decline of almost 10% by 1982. In addition, from 1968 to 1982, the Dow Jones industrial average lost 70% of its real value, reflecting an overall collapse of stocks.

President Reagan campaigned on an explicitly articulated, four-point economic program to reverse this slow motion collapse of the American economy:

1. Cut tax ratesto restore incentives for economic growth, which was implemented first with a reduction in the top income tax rate of 70% down to 50%, and then a 25% across-the-board reduction in income tax rates for everyone. The 1986 tax reform then reduced tax rates further, leaving just two rates, 28% and 15%.

2. Spending reductions, including a $31 billion cut in spending in 1981, close to 5% of the federal budget then, or the equivalent of about $175 billion in spending cuts for the year today. In constant dollars, nondefense discretionary spending declined by 14.4% from 1981 to 1982, and by 16.8% from 1981 to 1983. Moreover, in constant dollars, this nondefense discretionary spending never returned to its 1981 level for the rest of Reagan’s two terms! Even with the Reagan defense buildup, which won the Cold War without firing a shot, total federal spending declined from a high of 23.5% of GDP in 1983 to 21.3% in 1988 and 21.2% in 1989. That’s a real reduction in the size of government relative to the economy of 10%.

4. Deregulation, which saved consumers an estimated $100 billion per year in lower prices. Reagan’s first executive order, in fact, eliminated price controls on oil and natural gas. Production soared, and aided by a strong dollar the price of oil declined by more than 50%.

These economic policies amounted to the most successful economic experiment in world history. The Reagan recovery started in official records in November 1982, and lasted 92 months without a recession until July 1990, when the tax increases of the 1990 budget deal killed it. This set a new record for the longest peacetime expansion ever, the previous high in peacetime being 58 months.

During this seven-year recovery, the economy grew by almost one-third, the equivalent of adding the entire economy of West Germany, the third-largest in the world at the time, to the U.S. economy. In 1984 alone real economic growth boomed by 6.8%, the highest in 50 years. Nearly 20 million new jobs were created during the recovery, increasing U.S. civilian employment by almost 20%. Unemployment fell to 5.3% by 1989.

The shocking rise in inflation during the Nixon and Carter years was reversed. Astoundingly, inflation from 1980 was reduced by more than half by 1982, to 6.2%. It was cut in half again for 1983, to 3.2%, never to be heard from again until recently. The contractionary, tight-money policies needed to kill this inflation inexorably created the steep recession of 1981 to 1982, which is why Reagan did not suffer politically catastrophic blame for that recession.

Real per-capita disposable income increased by 18% from 1982 to 1989, meaning the American standard of living increased by almost 20% in just seven years. The poverty rate declined every year from 1984 to 1989, dropping by one-sixth from its peak. The stock market more than tripled in value from 1980 to 1990, a larger increase than in any previous decade.

In The End of Prosperity, supply side guru Art Laffer and Wall Street Journal chief financial writer Steve Moore point out that this Reagan recovery grew into a 25-year boom, with just slight interruptions by shallow, short recessions in 1990 and 2001. They wrote:

We call this period, 1982-2007, the twenty-five year boom–the greatest period of wealth creation in the history of the planet. In 1980, the net worth–assets minus liabilities–of all U.S. households and business … was $25 trillion in today’s dollars. By 2007, … net worth was just shy of $57 trillion. Adjusting for inflation, more wealth was created in America in the twenty-five year boom than in the previous two hundred years.

What is so striking about Obamanomics is how it so doggedly pursues the opposite of every one of these planks of Reaganomics. Instead of reducing tax rates, President Obama is committed to raising the top tax rates of virtually every major federal tax. As already enacted into current law, in 2013 the top two income tax rates will rise by nearly 20%, counting as well Obama’s proposed deduction phase-outs.

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Seriously, what would you do differently? Taxes are now at their lowest levels in 63 years. So the “cut taxes” nonsense has been debunked as a stimulus. Especially when the Bush tax cuts lead to the worst economy since the depression.

Did you conservatives think of that? Bush’s failed conservative policies left us with the worst economy since the depression with the tax cuts in full force.

Cut debt? Cutting spending has no stimulative effect. In fact since govt spending is a part of GDP, cutting spending would prolong the recovery.

Sorry conservative children. But this is a GLOBAL problem. Not just a US problem. Bush policies contributed greatly to the recession occurring and its a GLOBAL solution. Not just further tax cuts for the upper tiers who already pay historically low rates.

Bush tax cuts actually resulted in a record economic growth. America experienced six years of uninterrupted economic growth and a record 52 straight months of job creation that produced more than 8 million new jobs. During the Bush presidency, the unemployment rate averaged 5.3 percent. We saw labor-productivity gains that averaged 2.5 percent annually ; a rate that exceeds the averages of the 1970s, 1980s, and 1990s. Real after-tax income per capita increased by more than 11 percent. And from 2000 to 2007, real GDP grew by more than 17 percent, a gain of nearly $2.1 trillion.

I did look at the national debt beginning with the Reagan years and every time the Democrats were in control the national debt grew. They added 8.8 trillion during their rein. The country enjoyed a surplus when Clinton was president and the Republicans controlled the Congress; which controls the spending. The national debt grew 5 trillion when Nancy Pelosi was SOH and Reid was head of the Senate.

Obama had the opportunity to let the “Bush” tax cuts expire, but he signed an extension, so they are now the Obama tax cuts. If they were so damaging to the economy, why did he sign the bill? The tax cuts to the rich didn’t cause the problems we have today. They are caused by poor policy decisions and increased entitlement programs.

Reagan had to spend money on the military because the cuts during the Carter years made us weaker. It was through strength that we were able to end the cold war.

The Clinton bubble burst before Bush was elected. It continued throughout the early 2000′s. Then 9/11, more democratic-led fiscal legislation…

And the housing bubble was caused by legislation from a democratic-led congress that invited a lot of bad risks to be taken that would not have otherwise been underwritten. Bush attempted several times to get congress to address them, and Barney Frank and others ignored him, and led the way for the bubble to blow up.

And furthermore, corporate profits are surging under Obama, the DOW has nearly doubled on his watch. If republicans have a better solution that will yield better results, why is the GOP house concentrating on EVERYTHING but jobs? We’re seeing anti-abortion bills, gun posturing, birth certificate insanity, but no jobs bills. But your money where your yap is!

Face it cons, but Obama is probably the best economically conservative president in the past 100 years. Only you are too hung up on your childish GOP vs dems jihad to see reality

Here is some reading material from another post for those so infatuated with Obama’s losing ways. Read it and weep. The elections of 2012 are going to be very trying for all those hardened Democrats.

#### The annual increase in real (inflation-adjusted) federal spending declined from 4.0 percent during the Carter administration to 2.5 percent during the Reagan administration, despite a record peacetime increase in real defense spending. ####

There is a difference between increases and momentum. Carter established the momentum of debt and excessive government expenditure and Reagan had to deal with it.

When Clinton came to power, Bush had to deal with a severe recession and the gulf war. But the tax cuts put in place by Reagan and moderated somewhat by Bush left Clinton with an easy time of it. No Soviet Union to worry about, healthy revenues, a growing economy. No real recession except for the dot.com bust.

Reagan did not do much for reducing Federal expenditures, but he did crush the Soviet Union. Carter could not even crush Iran.

#### The top marginal tax rate on individual income was reduced from 70 percent to 28 percent. The corporate income tax rate was reduced from 48 percent to 34 percent. The individual tax brackets were indexed for inflation. And most of the poor were exempted from the individual income tax. ####

Wow!

#### The increase in productivity growth was even higher: output per hour in the business sector, which had been roughly constant in the Carter years, increased at a 1.4 percent rate in the Reagan years. Productivity in the manufacturing sector increased at a 3.8 percent annual rate, a record for peacetime. ####

#### Most other economic conditions also improved. The unemployment rate declined from 7.0 percent in 1980 to 5.4 percent in 1988. The inflation rate declined from 10.4 percent in 1980 to 4.2 percent in 1988. ####

#### In retrospect the major achievements of Reaganomics were the sharp reductions in marginal tax rates and in inflation. Moreover, these changes were achieved at a much lower cost than was previously expected. Despite the large decline in marginal tax rates, for example, the federal revenue share of GDP declined only slightly. Similarly, the large reduction in the inflation rate was achieved without any long-term effect on the unemployment rate. ####

Even though taxes were cut as profoundly as they were, revenues did not change much. Well, that would prove the claim of supply-siders who state that reducing taxes will allow the government to take a smaller share of a much larger pie.

Bear in mind that Reagan did not control the Congress or the Senate. He could only encourage both branches to take his advice. Many Democrats were not opposed to his efforts and had even made efforts prior to Reagan’s presidency. Government has grown as it always has. Reagan wanted to really gut the thing, but did not have the power or the votes. His Republican confreres seem to enjoy big government as much as the Democrats.

As for Obama, only God knows when this will end. 7 years of Bush’s deficits do not amount to 1 year of Obama’s. I do not even want to consider how bad it will be in each successive year! When the Democrats set out to tackle a problem, they always screw up and always leave a mess. How would the untested Clinton have fared with a crisis faced by Reagan or Bush? We saw how Carter did. We are seeing how Obama is.

You cite growth in the economy because of the high government expenditures funded by borrowing. I agree. How much of the GDP is just worthless government enterprise? Look at Obama’s and Carter’s expenditures with high deficits. How much of GDP would disappear without Obama’s immense deficit?

Gary: I’ll read that article later on, but I’d like to point out: Reagan didn’t defeat the Soviet Union alone. It was their own stagnant economy leading to reform; this reform lead to revolutions that broke up the Soviet Union. You can’t compare the Iran hostage situation with the Cold War. The Iranians had hostages. And then you have the statement about how George Bushes “7 years of deficits don’t match Obama’s 1 year”. Wait, why are you leaving out the 8th year? The one with a 1.4 trillion deficit? Other than entitlements, that included spending on interest(like 200+ billion dollars, not his fault), the 2 wars, reduced revenue from the recession, medicare part d, and the bush tax cuts.

A stagnant economy built upon decades of socialism/communism policy and build up of a war machine that all finally crumbled because they couldn’t keep up when their people had no real hope in their personal lives, and so gave no real liveliness to the world in which they existed.

Ridiculous column saying Reagan started out worse. Working income increases under Carter beat inflation. Having a high Fed. rate allows for reduction. Manufactuing base twice the size of Obama’s. No AIG outstanding loan, no GM in bankruptcy, no 2 war to pay for, smaller national debt., oil prices went down to less than $15/bbl. Don’t know if he was drunk or paid to write tripe, but that is exactly what this column is nonsense. The job loss was because of a changed monetary policy falling squarely on Reagan’s shoulders. The only true program for good growth was his ITC. His polcies caused the S&L failure, Bush41s recession, with wars in the mid-east. Obama’s tax rates were lower than Reagan’s including only 15% capital gains vs a low of 20%, lower inheritance tax. Raising taxes as Obama wants still makes them lower than under Reagan.

You cook statistics just like the author of this article. You write, “The unemployment rate declined from 7.0 percent in 1980 to 5.4 percent in 1988.”

That leaves out all of the bad years under Reagan, which were most of the years he was in office. I’m using yearly averages from the Department of Labor. Reagan did not have a lower unemployment rate than the worst year under Carter until Reagan’s sixth year. Reagan didn’t have a better year than the best year under Carter until Reagan’s last year. All in all, unemployment averaged much higher under Reagan than under Carter. It was also much higher than under Clinton. Reagan’s first two years were worse than Obama’s first two.

You picked out on good year out of Reagan’s record and tried to deceive.